I am a CPA in Texas with an MBA from the University of Chicago. I have seen a lot and made many mistakes. Hopefully by now I will have learned something from them. Just as importantly, you may learn something from my mistakes. You can e-mail me by clicking on my "View my complete profile".

Thursday, November 20, 2008

TIPSing Over?-2

"A big head-scratcher for investors is figuring out the appropriate yield for [10-year Treasury] bonds. They yielded 3.97% Friday, up from an October low of 3.43%. ... Seeing that, investors might be expected to pile into the 10-year, pushing its yield down to 5% or lower, in the belief that deflation is a real threat and interest rates will just keep heading lower. In other words, the 10-year Treasury would start mimicking the 10-year Japanese government bond. ... One interpretation is that government bond investors simply don't think the U.S. is entering a deflationary lost decade. ... Two things could keep yields high. First, the U.S. relies on foreigners to finance its current account deficit. ... Second, bond buyers--seeing how much money the authorities are throwing around--expect the volume of government debt to skyrocket", Peter Eavis at the WSJ, 1 November 2008.

9 comments:

I used to think the deflation bunch over @ mish's were really smart, they had their definitions down, they understood many of the shenanigans. Now they have lost all that, throw it out the window and have stupidity blinders on. They cite gubbermint numbers, CPI, PPI, they disallow shadowstats, and are basically in a deflationary circle jerk. What happened to the stringent definitions, what happened to common sense? Logic dictates that deflation and stock / bond market crashes are being used as a cover for rampant monetization. They are replacing leverages losses w/ base money for cripes sake! This whole thing is a coiled spring and while they're screaming deflation, deflation, like some retarded mina bird the crooks are stealing the silver!

So, for the time being, the clearest path to making money in the public markets is to know in advance what the government plans to do next with which companies, and when -- and then trade on it. Let there be no doubt: Plenty of people with access to such inside information are enriching themselves this way now.

"Definitely an argument against buying any 100 year bonds... corpse yields"

That is in fact what the treasury is doing by having more debt out than can be paid off within maturity. As I recall, the US is still paying off the Spanish/American war. We may have paid off the Mexican war.

In essence because of rollover of treasury debt the US is floating bonds for over 100 years.

Let's hope we all don't die tomorrow or no one will be left to pay of the federal debt.Definitely a case against mass starvation.

(((( Future action by the central bank might include ``aggressively buying long-term Treasury issues,'' Gramley, now a Washington-based senior economic adviser for Stanford Group Co., said in a Bloomberg Television interview.

Michael Feroli, a JPMorgan Chase & Co. economist who used to work at the Fed, said the central bank could also purchase the debt of Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the government in September.

``Before ramping up'' such programs, the Fed might ``first communicate to the markets that the nature of the current economic woes should keep rates low for an extended period,'' Feroli wrote in a note yesterday.

The Fed's balance sheet has already doubled to almost $2 trillion as officials introduced programs to inject liquidity into the economy.))))